Are we on the Cusp of a Market Slowdown in the UK?

Posted by Harry Kane on Friday, October 5, 2018

Over the course of the last 18 months or so, we’ve the UK Gambling Commission change its focus to reflect the growing challenges within the online marketplace. Most importantly, it has become increasingly focused on safeguarding potentially vulnerable players, while also striving to improve the way in which the industry is perceived within the wider world. This has resulted in a number of proactive and prudent player protection measures, which have simultaneously introduced safeguards for gamblers while increasing the cost of operating for brands.

In this article, we’ll look at some of these regulations in greater detail, while asking how they’re beginning to impact on operators and the market as a whole.

What Player Protection Measures have been Unveiled by the UKGC?

The UKGC embarked on a long-term period of consultation last year, and this resulted in a number of new player protection measures that are beginning to impact on the marketplace.

The first of these revolved around affordability checks, which were updated to ensure that operators were aware of potential problem gamblers who were verified account holders.

These updated regulations also improved the level of information and autonomy that was afforded to customers when managing their accounts, helping them to make more informed decisions on a daily basis.

Players could subsequently set financial limits across their entire gambling account as well as individual games, while they would also have access to a more extensive activity history and the total amount wagered within a specific time period.

The new measures also afforded customers access to information surrounding their net deposits, along with up to three months’ worth of account data at any given time.

Since this time, the UKGC has also carried out further inspections and consultations in relation to the online gambling market, working alongside organisations such as the Competition and Markets Authority (CMA) in the process.

Earlier this summer, the latter group announced the findings of their investigation into unfair terms and practices in the online gambling sector. This resulted in enforcement action against two gambling firms, who were believed to have placed unfair restrictions on customers who wanted to withdraw winnings from their accounts.

The operators in question have since pledged to make the necessary changes and comply with the latest industry standards, and if they fail in this endeavour they’ll face direct action and financial sanctions from the Gambling Commission.

When combined, these and similar regulatory changes have established a brand-new standard within the industry, improving both its wider perception and the overall gambling experience available to players. But what impact is this having on operators, and could it actually contribute to a short-term market downturn?

How are These Regulatory Measures Impacting on the Market?

The new player protection measures introduced by the UKGC have created something of a transitional period in the marketplace, with a number of high-profile operators falling foul of more stringent guidelines.

Take William Hill, for example, who were fined £6.2 million for failing to implement player safeguards and prevent money laundering activities back in2017. Earlier this year, online casino operator 32Red was also hit with a £2 million fine for failing to protect a particular gambler or carry out the necessary affordability checks.

Overall, the brand is thought to have missed 22 separate opportunities to protect this individual, affording him VIP status and targeted bonuses rather than addressing his own concerns.

This followed on from the record £7.8 million fine administered to 888 last year, when the Gambling Commission revealed that a technical failure left 7,000 customers who had self-excluded able to access their online accounts. To the regulator, this represented a significant flaw in the firm’s social responsibility processes, while the magnitude of the fine drew a line in the sand for operators to follow in the future.

Interestingly, 888 Holdings have also recorded diminished revenue growth during the first half of 2018, with the brand one of the first to reveal how the increased cost of operating has impacted on financial performance.

Overall, the company reported a 1% year-on-year increase in total revenue during this period, generating $273.2 million in the six months ending June 30th. The B2C division of the business actually saw its revenue increase by 2% during the same period, although this reflected global income and it was interesting to note that the business experienced considerable declines in the UK market.

The brand’s chief executive Itai Freiberger said that these diminishing returns were at least partially due to the new regulatory measures, as the operator was required to focus more on compliance and enhancing customer protection rather than simply pursuing growth opportunities.

This triggered a noticeable rise in operating expenses for the brand, with the total cost or running various factions of the business increasing to $80.5 million. During the same period, gaming duties also rose marginally to $37.8 million, placing a clear squeeze on profitability and growth prospects for the future.

If this trend is replicated across the board, it will highlight the need for operators to sacrifice short-term profitability in order to drive compliance and become ambassadors for responsible gambling in the UK. This will undoubtedly hit short-term market growth, but the question that remains is the extent to which the slowdown will take hold.

The Last Word

Many will argue that slightly diminished growth and profitability is a small price to pay for greater player protection, while the Gambling Commission is certainly adamant that this type of sacrifice is necessary if the industry to retain its popularity and ultimately achieve sustainable growth in the future.

However, both operators and regulators alike must remain vigilant in the months’ ahead, particularly with Brexit looming large on the horizon and a considerable hike in the Gambling Duty likely to be announced in April next year.

In these instances, there’s little doubt that growth could diminish at a far greater rate over the course of the next 12 months and beyond. This has yet to be seen, of course, but operators are almost certainly bracing themselves for choppy waters as 2019 approaches.